ANALYSIS: Another petrol price hike, third in a row, will take costs to new level

JOHANNESBURG - The central Energy Fund (CEF) announced yesterday that the price of petrol will rise by between 25 cents and 29c a litre and that of diesel by 42c a litre from midnight tonight.

This latest increase is the third month in a row and brings the increase in 95 ULP octane petrol in Gauteng to 115c, or 8.9percent, since July 4. The price per litre of 95 ULP petrol in Gauteng will cost R14.01 from tomorrow. This is the highest price per litre since September 2, 2014. The price of diesel will cost motorists in Gauteng R12.12 per litre or also 115c (10.5percent) higher than three months ago. The price of Illuminating paraffin will increase by 39c a litre.

According to the daily analysis of the CEF the average international price of petrol had increased by 34c per litre; that for diesel by 49c per litre; and of Illuminating paraffin by 41c per litre over the period September 1 to September 28. These increases were partly reduced in rand terms due to appreciation of the rand from R13.21 the previous period to an average of R13.13 to the dollar over the reviewed period.

Given that the rand/dollar exchange rate has increased sharply over the past two weeks to R13.63/dollar yesterday and that the price for Brent crude has also increased to levels of close to $56 per barrel over the past two weeks, it will already impose a large under recovery on the fuel price during October.

By last Friday, the price for diesel was at 69c per litre under recovered. This implies that if the rand remains above R13.50/$ and the Brent oil price around $56 per barrel, consumers are likely to pay another stiff increase in fuel prices at the beginning of November.

The continual increases in the fuel prices will definitely have a strong rising effect on both the consumer price index (CPI) and the producer price index in months to come.

The increase of 29c per litre for petrol and diesel at the beginning of August on its own had a big impact on the inflation rate increase from 4.6percent to 4.8percent in August. The weight of fuel in the CPI basket is 4.58percent and the price of fuel had increased on an annual basis by 5.7percent during August. Fuel that forms a part of the transport sub-index in the CPI contributed 0.6percent to the total inflation rate of 4.8percent in August.

This is a sharp increase from its contribution of only 0.1percent in July. The sharp increase of 67c per litre in the price of petrol in September is likely to have a larger increasing effect on the CPI rate for September. This may also play a mayor part in the decision by the Monetary Policy Committee of the Reserve Bank not to lower interest rates in months to come.

Given that most farmers will plant their summer crops over the following month or two, the increase in the diesel price by more than 10percent over the last year will have a noticeable effect on farmers input costs.